We design and manufacture instruments and equipment used in the oil and gas
industry to acquire seismic data in order to locate, characterize and monitor
hydrocarbon producing reservoirs. We also design and manufacture non-seismic
products, including industrial products, offshore cables, thermal printing equipment
and film. We report and categorize our customers and products into two different
segments: Seismic and Non-Seismic.
Our seismic business segment accounts for the majority of our revenue. Geoscientists
use seismic data primarily in connection with the exploration, development and
production of oil and gas reserves to map potential and known hydrocarbon bearing
formations and the geologic structures that surround them. Our seismic product
lines currently consist of land and marine nodal data acquisition systems, permanent
land and seabed reservoir monitoring products and services, geophones and geophone
strings, hydrophones, leader wire, connectors, telemetry cables, marine streamer
retrieval and steering devices and various other products. Our seismic products
are compatible with most major competitive seismic data acquisition systems
currently in use. We believe that our seismic products are among the most technologically
advanced instruments and equipment available for seismic data acquisition.
We report and categorize our sales and products into two business segments:
Seismic and Non-Seismic. Our Seismic product lines currently include land and
marine wireless data acquisition systems, seabed permanent reservoir monitoring
systems and services, geophones and geophone strings, hydrophones, leader wire,
connectors, telemetry cables, marine streamer retrieval and steering devices
and various other products. Our Non-Seismic product lines include thermal imaging
and industrial products. Frequently, we have a minor amount of Seismic product
sales to our Non-Seismic customers.
Our non-seismic businesses leverage upon our existing manufacturing facilities
and engineering capabilities. We have found that many of our seismic products,
with little or no modification, have direct application to industries beyond
those involved in oil and gas exploration and development. For example, our
customers utilize our borehole tools to monitor subsurface carbon dioxide injections
and for mine safety applications.
Our non-seismic products include thermal imaging products targeted at the commercial
graphics industry as well as various industrial products. Our industrial products
include (i) sensors and tools for vibration monitoring, mine safety application
and earthquake detection, (ii) cables for power and communication for the offshore
oil and gas and offshore construction industries, and (iii) water meter cables
and other specialty industrial cable and connector products.
Our long-term business strategy is focused on continued investment in research
and development, expansion of our manufacturing and engineering capacity, expansion
of our seismic equipment rental business, selective acquisitions, reinvestment
of profits and minimizing debt obligations.
Continue Investment in Research and Development – Historically, our growth
has been driven through our internal development of new products targeted at
the seismic industry. In past years, our seismic product innovations included
the introduction of borehole seismology tools, seabed permanent reservoir monitoring
systems and wireless data acquisition systems. These innovative technologies
are the result of our continuous investment in research and development initiatives,
even during difficult industry cycles when we experience a significant decline
in customer demand for our products. We believe our past growth is a direct
result of this strategy and we intend to continue such research and development
investments.
Attract and Retain Engineering Staff – Our engineering staff has been
key to our success, we intend to continue our tradition of retaining and attracting
engineering staff and providing appropriate compensation and benefits.
Expand Manufacturing and Engineering Capacity to Accommodate Future Growth –
Our new product innovations have led to significant revenue growth in previous
years. Since our initial public offering in 1997 and through fiscal year 2015,
we have expanded our manufacturing, warehousing, engineering and office space
from 99,000 square feet to 648,000 square feet. Early in fiscal year 2013, we
received a large order from Statoil to design and manufacture two seabed permanent
reservoir monitoring systems. This order required substantially all of our manufacturing
capacity and capabilities for a period of approximately 18 months, requiring
us to outsource many of our routine manufacturing activities and to turn away
potential customer orders for other products. Furthermore, we had no spare manufacturing
capacity to accommodate any other large order for a permanent reservoir monitoring
system, should one have occurred. We believe we are the world leader in the
design and manufacture of these systems. As such, we expect to receive future
orders for large-scale reservoir monitoring systems which may exceed the magnitude
of the Statoil Order, although the timing and frequency of such orders, if any,
is unknown. We are currently experiencing depressed industry conditions as a
result of lower crude oil prices and their impact upon capital spending in the
oil and gas industry worldwide. The resulting significant decline in seismic
product orders and, in particular, the lack of any orders for permanent reservoir
monitoring systems, have required us to defer our plans to expand our manufacturing
and engineering facilities until product demand, including demand for large
permanent reservoir monitoring systems, and factory capacity utilization return
to levels comparable to those we experienced during fiscal year 2013.
·
Expand our Seismic Equipment Rental Business – We have offered seismic
equipment to our customers on a rental basis for many years, originally through
our subsidiary in Canada. Following our introduction of new wireless data acquisition
technology in 2008, we began offering our newly introduced GSX systems for rent
in 2009, and at that time we initiated a rental fleet of 2,000 GSX channels.
At the conclusion of fiscal year 2015, our rental fleet contained 130,000 GSX
channels which are warehoused in North America, South America and Europe. Many
current owners of our GSX channels were initially introduced to the product
through a rental. We believe this rental strategy has contributed to the sale
of 331,000 GSX channels since its introduction in 2008. We have also expanded
this rental strategy to our marine OBX wireless system. At the conclusion of
fiscal year 2015, our rental fleet contained 4,400 OBX stations. While demand
has declined substantially for the rental of our GSX equipment due to the significant
underutilization of customer-owned land data acquisition systems, we expect
our OBX rental revenue to increase in fiscal year 2016 as a result of a recent
agreement executed with an international seismic contractor. We plan to meet
this demand by adding additional OBX stations to our rental fleet. We believe
our rental business creates opportunities for us to demonstrate the qualities
and benefits of new products like the GSX and OBX to potential customers without
requiring the customer to make a large upfront capital investment. As a result,
we will continue adding new product technologies to our rental fleet to meet
customer demand.
·
Selectively Pursue Acquisitions of Businesses with Technological and Engineering
Overlap – The seismic industry periodically experiences volatile business
cycles requiring us to rapidly increase and decrease our business activities
to meet the industry’s demand for our products. The seismic industry generally
offers equipment manufacturers like us limited visibility into new orders creating
challenges for us to manage our manufacturing capacity, workforce and working
capital. While our primary growth initiative is to expand our seismic product
offerings, we may also seek out other non-seismic business opportunities which
complement our existing products, engineering and manufacturing capabilities,
and company-wide culture. While we routinely evaluate both seismic and non-seismic
business acquisition opportunities, we may direct these efforts toward non-seismic
businesses in order to diversify our revenue base and expose us to different
markets with different business cycles.
·
Reinvest Profits and Minimize Debt Obligations – Our growth over the years
has resulted from the reinvestment of our cash profits back into engineering
projects, plant additions, rental fleet development and expansion, small niche
acquisitions and working capital expansion. While we are not opposed to moderate
amounts of short-term debt during favorable business cycles, we choose to minimize
our exposure to long-term debt obligations which, in our view, restrict our
ability to operate during periodic difficult business cycles in the seismic
industry similar to the current business environment. We believe this strategy
has allowed us to achieve higher revenue and profit growth than our peers, many
of whom have significant long-term debt burdens. We also believe that the value
of our common shares outstanding will be best served in the long-term by reinvesting
our cash profits back into the business. In this regard, we do not anticipate
paying any cash dividends in the foreseeable future, nor do we expect to initiate
a buy-back program to repurchase our common stock.
78.21 %